"Must view" links to FINRA anti-scam campaign: Internet Scambusters #540
You might have heard of FINRA, but maybe that's about it.
But if you have even a single cent to invest, you should get to know this financial industry watchdog better.
It could easily save you a fortune from the grasp of greedy scammers, as we explain in this week's issue.
And now for the main feature...
Investment Watchdog FINRA Fights Financial Scams
With investment fraud costing Americans billions of dollars every year, FINRA -- the Financial Industry Regulatory Authority -- is on the front line of the fight back against scammers.
According to the FBI, in its latest report, securities and commodities fraud investigations jumped 52% in the two years to 2010/11.
One national crime sweep alone, called Operation Broken Trust, during late 2010, identified 120,000 investment scam victims, with losses totaling $8 billion. Some 343 alleged crooks were nabbed.
Ignorance and gullibility usually head the list of reasons investors fall for these scams, a subject we've covered in an earlier issue, The Gullibility Factor and What You Can Do About It.
But as we said in that report, and as FINRA points out, that doesn't mean the victims are stupid.
Many of them are intelligent, investment-savvy individuals who fall for the tricks for one good reason: Crooks have become experts at disguising "too good to be true" to look like plain, simple "good."
Even so, following a number of basic rules could still have avoided most of the scams, so FINRA launched a campaign in 2006 to educate investors.
This is still in full swing, and we'll take a look at it in a moment.
Get to Know FINRA
First, just a few words about FINRA, which takes the spotlight this week in our occasional series about organizations involved in the anti-scam battle.
Many people think it's a government body but it's not -- that's the SEC, the Securities and Exchange Commission.
FINRA is the investment industry's own watchdog and educational body, responsible for training and qualifications as well as setting standards, policing the activity of its members, and arbitrating in disputes between members and investors.
It's a private corporation but it oversees the activities of more than 5,000 brokerage firms, their 173,000 branch offices, and 676,000 registered securities representatives.
From the anti-scam perspective, it offers three key services:
- A news alert service, which also covers other investment topics but has a section devoted to scams.You can sign up to receive these via RSS readers but if that's too technical for you, just bookmark the FINRA Investor Alerts page and visit it regularly.You can also do a search by topic from this page.
- A broker check service -- a free tool that allows you to check the backgrounds of over 1.3 million current and former professional brokers and investment advisers.
- A complaints and tips service through which you can pass information about dubious investment promotions.
An online visit to the FINRA Complaint Center enables you to download a brochure on their grievance process and a list of questions to answer before you file a complaint.
For tips on dubious brokers and advisors, step into FINRA's dramatically-titled rapid-response unit, the Office of the Whistleblower.
Test Your Scam Risks
FINRA offers a number of other anti-scam tools that you'll also find in the other part of FINRA's investor protection activity -- the previously mentioned education campaign started in 2006.
As we suggested, the background research that kicked off the campaign described the profile of a typical investment fraud victim as being college-educated and having above-average financial knowledge.
They also tend to be optimists, open to new ideas and independently minded when it comes to making investment decisions. Often, too, they've recently suffered either a costly health problem or other financial setback.
As for the scammers' profile: "They're masters of persuasion, tailoring their pitches to match the psychological profiles of their targets," says FINRA.
"They look for your Achilles' heel by asking seemingly benign questions -- about your health, family, political views, hobbies or prior employers. Once they know which buttons to push, they'll bombard you with a flurry of influence tactics, which can leave even the savviest person in a haze."
FINRA characterizes their main tactics as:
- Phantom Riches: Promising wealth beyond expectations.
- Source Credibility: Claiming to be from a highly reputable firm.
- Social Consensus: Suggesting other savvy investors are already making a fortune with their recommendation.
- Reciprocity: Offering to do you a favor, like charging reduced commission, if you buy now.
- Scarcity: Warning the offer won't last, that whatever is on offer is in short supply.
The FINRA campaign subsequently spawned its own website at SaveAndInvest.org, which is a "must view" for investors.
It includes two key question-driven tools to test how vulnerable you are to a scam and whether a particular investment has enough red flags to suggest a scam.
These take only a few minutes to complete.
There are also case studies of how other people have been scammed, access to a free kit called "Tricks of the Trade: Outsmarting Investment Fraud," and links to other useful resources.
Whether you're a seasoned pro, an individual with just a bit of cash to invest, or anything in between, it's so easy to miss a trick when a scam looms on the horizon.
Don't think it'd happen to you?
"The truth is, we're all at risk," says FINRA. "Anyone with any money is bound to hear from a fraudster at some point." Make sure you're ready when it happens.
Time to close today, but we'll be back next week with another issue. See you then!